<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
X Annual report pursuant to section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the fiscal year ended December 31, 1995
Transition report pursuant to section 13 or 15(d) of the
--- Securities Exchange Act of 1934 for the transition period from
to
--------------- ---------------
Commission File No. 0-17909
PHOENIX NETWORK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0881154
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 CALIFORNIA STREET, 11TH FLOOR, SAN FRANCISCO, CALIFORNIA 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 399-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
COMMON STOCK $0.001 PAR VALUE American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of March 26, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $38,621,885 (based on the closing sales
price as reported on the American Stock Exchange).
The number of shares outstanding of the Registrant's Common Stock, $0.001 par
value, was 17,399,037 at March 26, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS.
The names of the directors and certain information about them are set
forth below:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
<S> <C> <C>
Thomas H. Bell(1)(3) 48 1985
Robert R. Curtis 49 1992
James W. Gallaway(2) 56 1988
Wallace M. Hammond 50 1994
Sidney Kahn 59 1994
Merrill L. Magowan(2)(3) 57 1990
John David Singleton 56 1995
Max E. Thornhill 64 1995
Myron A. Wick III(1) 52 1992
</TABLE>
- -------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
THOMAS H. BELL
Mr. Bell is the founder of the Company and has served as Chairman of
the Board of Phoenix since the inception of Phoenix Telcom, Inc. in 1985 and
served as Chief Executive Officer of the Company from 1985 to January 1992. Mr.
Bell served as President of the Company from 1985 to September 1990. Mr. Bell is
also an independent consultant in the telecommunications industry.
ROBERT R. CURTIS
Mr. Curtis has served as a Director of the Company since May 1992 and
was elected as Vice Chairman, effective January 1995. Mr. Curtis previously
served as Chief Executive Officer of the Company between January 1992 and
December 1994. He was a consultant to the Company from September through
December of 1991. Mr. Curtis is the Chief Executive Officer of Robert Curtis &
Co., Inc., a private investment and management advisory firm founded in 1985.
Through that firm he has served as a General Partner in Primo's Espresso
Americana, a specialty retail coffee business, from 1992 to the present, and
served as Chief Executive Officer of WEA International, Inc., a worldwide
educational and training and development business, from 1985 to 1990. Mr. Curtis
was the Managing Partner of CCG International, Inc., a management consulting
firm in Toronto, Canada from 1989 to 1991, when he sold his interest in that
firm.
2.
<PAGE> 3
JAMES W. GALLAWAY
Mr. Gallaway became a director of the Company in July 1988. He is a
founder and former director of Centex Telemanagement, Inc. ("Centex"). He was a
director of Centex from 1984 to 1988 and a Vice President from 1983 to 1986.
Since 1980 he has been President of Gallaway Enterprises, Inc., a
telecommunications company. From February 1988 through December 1994, he served
as a director and Vice President of StellarNet, Inc., an information management
company in the health care industry. Mr. Gallaway is a U.S. Marine Corps Reserve
(Retired) Colonel.
WALLACE M. HAMMOND
Mr. Hammond was hired as the Executive Vice President of the Company in
February 1994. He was elected to the Company's Board of Directors and named
President and Chief Operating Officer of the Company in May of 1994. Mr. Hammond
was elected Chief Executive Officer in December 1994. From 1992 to 1993, he was
President and Chief Executive Officer of ANSCO & Associates, a telephone
engineering and plant construction company. From 1979 to 1992, he was with
BellSouth Communication Systems, Inc., a nationwide division of BellSouth
Corporation involved in the customer premises equipment after-market, where he
was promoted to Vice President-Operations in 1989.
SIDNEY KAHN
Mr. Kahn was elected to the Board of Directors in May of 1994. Mr. Kahn
is a private investor and venture capitalist. Between 1966 and 1977 Mr. Kahn was
a Managing Director of Lehman Brothers, an investment banking firm, and between
1978 and 1987 he was a senior officer of E.F. Hutton Company, an investment
brokerage firm.
MERRILL L. MAGOWAN
Mr. Magowan became a Director of the Company in September 1990. Since
1982, Mr. Magowan has been a principal of S F Associates, a California
registered investment advisory firm (formerly known as Magowan Dirickson
Investment Company). He is also currently a director of Nordeman Grimm (since
1975), an executive search consulting firm. From 1968 to 1986 he was a director
of Safeway Stores, Inc.
JOHN DAVID SINGLETON
Mr. Singleton has served as a director of the Company since October
1995. He was founding director of LDDS WorldCom, Inc. and served as director
from 1983 to 1992. He serves on the board of Red Fox Environmental Services in
Lafayette, LA. He was a founding director of US One where he is also still
serving. Mr. Singleton worked in personal and small business financial planning
for 25 years and currently manages a private portfolio.
MAX E. THORNHILL
Mr. Thornhill, 63, has served as a director of the Company since
October 1995. He was founding director of LDDS WorldCom, Inc. and served as a
director from 1983 to September 1993. He was a founding director of US One where
he is still serving. Mr. Thornhill is engaged in real estate development and oil
and gas exploration and production.
MYRON A. WICK III
Mr. Wick became a director of the Company in January 1992. Mr. Wick is
currently a managing director and founder of McGettigan, Wick & Co., Inc., a
merchant banking fund formed in 1988 and a general partner of
3.
<PAGE> 4
the general partner of Proactive Partners, L.P., an investment partnership
formed in 1991. Mr. Wick is a director of Childrens Discovery Centers, Inc.,
Digital Dictation, Inc., Modtech, Inc. and NDE Environmental, Inc., and Chairman
of the Board of Directors of Sonics Research Corporation and Wray-Tech
Instruments, Inc. From 1985 to 1988 Mr. Wick was Chief Operating Officer of
California Biotechnology, Inc. (recently renamed Scios Nova Inc.), a
biotechnology company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Commission initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Offices, directors
and greater than ten percent stockholders are required by Commission regulation
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with, except that one report covering an
aggregate of two transactions was filed late by Mr. Kahn.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
No cash fees are paid to directors for serving on the Board. The
members of the Board are, however, eligible for reimbursement for their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy.
Each non-employee director of the Company also receives stock option
grants under the 1992 Non- Employee Directors' Stock Option Plan (the
"Directors' Plan"). Only non-employee directors of the Company or an affiliate
of such directors (as defined in the Code) are eligible to receive options under
the Directors' Plan. Options granted under the Directors' Plan are intended by
the Company not to qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. Each
person who is elected or appointed on or after January 4, 1993 to be a
non-employee director of the Company is automatically granted under the
Directors' Plan an option to purchase 10,000 shares of Common Stock of the
Company. On the first business day of each year, commencing on January 3, 1994,
each non-employee director of the Company is automatically granted under the
Directors' Plan an option to purchase shares of Common Stock (rounded to the
nearest 100 shares) of the Company equal to the Proration Factor (as hereinafter
defined) multiplied by the sum of (i) 10,000 shares of Common Stock of the
Company and (ii) 2,500 shares of Common Stock of the Company multiplied by the
number of full years such non-employee director has served in such capacity. The
"Proration Factor" equals a fraction the numerator of which is the number of
calendar days during the preceding year on which such person served as a
non-employee director and the denominator of which is 365. No other options may
be granted at any time under the Directors' Plan. The exercise price of options
granted under the Directors' Plan is equal to the fair market value of the
Common Stock subject to the option on the date of the option grant. Options
granted under the Directors' Plan vest at the rate of one-sixteenth per quarter
for sixteen quarters following the date of the grant. The term of options
granted under the Directors' Plan is ten years.
4.
<PAGE> 5
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ending December 31,
1995, 1994 and 1993, compensation awarded or paid to, or earned by the Company's
Chief Executive Officer and each other officers at December 31, 1995 who
received total annual salary and bonus in excess of $100,000 for the year ended
December 31, 1995 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual compensation Awards
--------------------- ----------
Securities
Underlying All Other
Name and Principal Salary(1) Bonus Options/(2) Compensation(4)
Position Year ($) ($) SARs (#) ($)
- ------------------------- ---- ---------- ------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Mr. Wallace M. Hammond(3) 1995 203,511 67,451 300,000 2,320
President and Chief 1994 127,885 300,000(2)
Executive Officer
Mr. Jeffrey L. Bailey 1995 129,219 15,193 50,000 2,320
Senior Vice President and 1994 120,573 500
Chief Financial Officer 1993 109,838 145,000(2) 700
Mr. Paul C. Cissel(3) 1995 125,001 25,000 20,438
Vice President of Sales and 1994 28,646 150,000
Marketing
Mr. J. Rex Bell 1995 117,657 15,193 50,000 2,320
Senior Vice President 1994 109,585
of Operations 1993 99,159 104,000(2)
</TABLE>
- --------------------
(1) Includes amounts earned but deferred at the election of the executives.
As permitted by Commission rules, no amounts are shown for 1993 or 1994
or with respect to 1995 for certain perquisites, where such amounts do
not exceed the lesser of 10% of bonus plus salary or $50,000.
(2) Repriced options treated as new grants. The Company has no stock
appreciation rights (SARs).
(3) Mr. Hammond and Mr. Cissel were not employed by the Company before
1994, thus only 1995 and 1994 compensation is disclosed. The amounts
disclosed include compensation commencing in February 1994 for Mr.
Hammond, when he joined the Company as Executive Vice President, and
include compensation
5.
<PAGE> 6
commencing in November 1994 for Mr. Cissel, when he joined the Company
as Vice President of Sales and Marketing. Mr. Hammond was elected
President and Chief Operating Officer of the Company in May 1994 and
Chief Executive Officer in December 1994.
(4) In each case, All Other Compensation includes $500 in matching Section
401(k) plan contributions made by the Company in 1994 and $1,000 in
1995. The balance of the amount reported for each officer except Mr.
Cissel represents a reimbursement of parking expenses. The balance of
the amount reported for Mr. Cissel represents commission payments of
$19,218 and reimbursement of parking expenses of $220.
EMPLOYMENT AGREEMENTS
Effective January 1, 1995, the Company and Mr. Hammond entered into an
employment agreement with a term beginning January 1, 1995 and ending December
31, 1997 which provides for a salary of at least $200,000 for 1995, $225,000 for
1996 and $250,000 for 1997. The agreement further provides for an option grant
of 200,000 shares of the Company's Common Stock vesting at the rate of 12,500
shares per calendar quarter and a bonus, payable quarterly, equal to 2% of the
Company's pre-tax profits. Under terms of the employment agreement, should an
acquisition of the Company or similar corporate event and the termination of Mr.
Hammond's employment with the Company occur, any unvested shares of stock
subject to options held by Mr. Hammond will immediately vest. In the event Mr.
Hammond is terminated without cause, the Company has agreed he is to receive a
severance amount equal to 12 months' salary. In the event of an acquisition of
the Company or similar event, the Company has agreed to pay Mr. Hammond a
severance amount equal to 24 months salary. In either a termination of Mr.
Hammond's employment without cause or the termination of his employment in the
event of the acquisition of the Company or a similar corporate event, the
Company has agreed to pay Mr. Hammond's reasonable relocation expenses, not to
exceed $20,000.
Effective January 1, 1995, the Company and Mr. Bailey entered into an
employment agreement for the 1995 calendar year providing for an annual salary
at least $127,200, the immediate vesting, in the event of an acquisition of the
Company or similar corporate event resulting in the termination by the Company
of Mr. Bailey's employment, of all unvested shares of the Company's stock
subject to options held by Mr. Bailey, and a severance payment of $127,200 in
the event Mr. Bailey's employment is terminated as a result of an acquisition of
the Company or similar corporate event. The Company has also agreed to pay on a
quarterly basis a bonus equal to 1% of the Company's pre-tax profit for that
quarter. In the event Mr. Bailey's employment is terminated without cause, the
Company has agreed to pay the greater of one-half the annual salary or the
balance of the annual salary due under the employment agreement.
Effective January 1, 1995, the Company and Mr. Rex Bell entered into an
employment agreement for the 1995 calendar year providing for an annual salary
at least $116,600, the immediate vesting, in the event of an acquisition of the
Company or similar corporate event resulting in the termination by the Company
of Mr. Rex Bell's employment, of all unvested shares of the Company's stock
subject to options held by Mr. Rex Bell, and a severance payment of $116,600 in
the event Mr. Rex Bell's employment is terminated as a result of an acquisition
of the Company or similar corporate event. The Company has also agreed to pay on
a quarterly basis a bonus equal to 1% of the Company's pre-tax profit for that
quarter. In the event Mr. Rex Bell's employment is terminated without cause, the
Company has agreed to pay the greater of one-half the annual salary or the
balance of the annual salary due under the employment agreement.
Effective October 10, 1994, the Company and Mr. Cissel entered into an
employment agreement with a term ending October 9, 1995. Under the employment
agreement, Mr. Cissel is to be paid a salary at an annual rate of $125,000 and a
monthly bonus equal to 1% of new customer billings. Mr. Cissel also received an
option to purchase 150,000 shares of the Company Common Stock, which shares vest
at the rate of 9,375 shares per quarter, subject to immediate vesting upon an
acquisition of the Company or similar corporate event resulting in the
termination of Mr. Cissel's employment. The Company has agreed to reimburse up
to $20,000 of rental expenses incurred by Mr. Cissel prior to his establishing a
permanent residence in San Francisco, California. Should Mr. Cissel's employment
with the Company be terminated without cause during the term of the employment
6.
<PAGE> 7
agreement, the Company has agreed to pay him the greater of one-quarter of the
annual salary due under the employment agreement or the balance of the salary
due had employment continued for the term of the employment agreement.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1989
Stock Option Plan (the "1989 Plan"). As of April 1, 1996, options to purchase a
total of 2,079,423 shares had been granted and were outstanding under the Plan
and no shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1995,
certain information regarding options granted to, exercised by, and held at year
end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential
------------------------- Realizable Value at
Percentage Assumed Annual
Number of of Total Rates of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term(2)
Options Employees or Base Expira- --------------------
granted in Fiscal price tion
Name (#) 1995(1) ($/Sh) Date 5% ($) 10% ($)
- ----------------- ---------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Wallace M. 200,000 27.9 2.375 3/23/99 105,252 227,402
Hammond 100,000 13.9 3.125 3/23/99 60,110 128,394
Jeffrey L. Bailey 25,000 3.5 2.375 3/23/99 13,156 28,425
25,000 3.5 3.125 3/23/99 15,027 32,098
Paul C. Cissel 25,000 3.5 3.125 3/23/99 15,027 32,098
J. Rex Bell 25,000 3.5 2.375 3/23/99 13,156 28,425
25,000 3.5 3.125 3/23/99 15,027 32,098
</TABLE>
- --------------------
(1) Based on options to purchase 717,400 shares of the Company's Common
Stock granted in 1995.
(2) The potential realizable value is based on the term of the option at
its time of grant (4.1 years for the option for 200,000 shares granted
to Mr. Hammond and for the initial options for 25,000 shares granted to
Mr. Bailey and Mr. Bell and 3.6 years for the option for 100,000 shares
granted to Mr. Hammond and for the second options for 25,000 shares
granted to Mr. Bailey, Mr. Cissel, Mr. Cissel and Mr. Bell). It is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually for the
entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. No gain to
the optionee is possible unless the stock price increases over the
option term, which will benefit all stockholders.
7.
<PAGE> 8
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND
VALUE OF OPTIONS AT END OF FISCAL YEAR 1995
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs Options/SARs
Shares at End of at End of
Acquired Value Fiscal 1995 (#) Fiscal 1995 ($)(2)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($)(1) Unexercisable Unexercisable
- ----------------- ----------- -------- --------------- ------------------
<S> <C> <C> <C> <C>
Jeffrey L. Bailey - - 129,693/45,307 330,682/41,193
J. Rex Bell - - 94,123/44,877 237,310/40,065
Wallace M. - - 175,000/425,000 197,656/439,844
Hammond
Paul C. Cissell - - 48,437/126,563 3,711/18,164
</TABLE>
- -----------------------------
(1) Value realized is based on the fair market value of the Company's
Common Stock on the date of exercise minus the exercise price and does
not necessarily indicate that the optionee sold such stock.
(2) Fair market value of the Company's Common Stock at December 31, 1995
($2.625) minus the exercise price of the options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock and voting Preferred Stock as of March
31, 19961 by: (i) each director and nominee for director; (ii) each executive
officer named in the Summary Compensation Table; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership(2)
----------------------------
Number of Percent of
Beneficial Owner Address Shares Total
---------------- ------- --------- ----------
<S> <C> <C>
Thomas H. Bell(3),(4) 550 California Street 3,301,456 13.7%
11th Floor
San Francisco, CA 94104
Bell Non-Exempt Marital Trust 550 California Street 1,394,335 5.9%
11th Floor
San Francisco, CA 94104
Judy Van Essen c/o 550 California Street 2,800,000 11.9%
11th Floor
San Francisco, CA 94104
</TABLE>
8.
<PAGE> 9
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(2)
----------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER ADDRESS SHARES TOTAL
<S> <C> <C> <C>
Jon D. Gruber(5),(6),(7) 50 Osgood Place 2,214,089 9.3%
San Francisco, CA 94133
J. Patterson McBaine5,6,8 50 Osgood Place 2,191,193 9.2%
San Francisco, CA 94133
Gruber & McBaine
Capital Management(5),(6) 50 Osgood Place 2,172,061 9.1%
San Francisco, CA 94133
Myron A. Wick III3,5,9,10 550 California Street 1,915,268 8.0%
11th Floor
San Francisco, CA 94104
Charles C. McGettigan(3),(5),(9) 50 Osgood Place 1,822,859 7.6%
San Francisco, CA 94133
Max E. Thornhill(3) 1,756,088 7.4%
Sidney Kahn(3) 111,938 0.5%
James W. Gallaway(3) 458,425 1.9%
Proactive Investment 50 Osgood Place
Managers(5) San Francisco, CA 94133 1,582,929 6.7%
Robert R. Curtis3,11 460,188 1.9%
Jeffrey L. Bailey(3) 137,498 0.6%
Merrill L. Magowan(3),(12) 120,445 0.5%
Wallace M. Hammond(3) 266,000 1.1%
John David Singleton(3) 172,506 0.7%
J. Rex Bell(3) 101,498 0.4%
Paul C. Cissel(3) 72,112 0.3%
Jon R. Beizer(3) 24,750 0.1%
All executive officers
and directors as a
group(13) (12 persons) 8,898,170 34.4%
</TABLE>
- ------------------------
9.
<PAGE> 10
(1) In addition to 17,339,037 shares of Common Stock, at March 31, 1996 the
Company has 2,727,389 shares of Preferred Stock outstanding, of which
101,750 are shares of Series A Preferred Stock, 116,250 are shares of
Series B Preferred Stock, 1,000,000 are shares of Series C Preferred
Stock, 333,333 are shares of Series D Preferred Stock and 1,176,056 are
shares of Series F Preferred Stock. The Series C Preferred Stock is
nonvoting, except as required by law. The Series A Preferred Stock,
Series B Preferred Stock, Series D Preferred Stock and Series F
Preferred Stock vote together with the Common Stock as a single class
on an as-if-converted to Common Stock basis, except as required by law,
the Company's Amended and Restated Certificate of Incorporation or the
Company's Certificates of Designation of Preferences of Series B,
Series C, Series D and Series F Preferred Stock.
(2) This table is based upon information supplied by executive officers,
directors and principal stockholders and Schedules 13D and 13G filed
with the Securities and Exchange Commission (the "Commission"). Unless
otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect
to the shares indicated as beneficially owned.
(3) Includes shares of Common Stock which certain executive officers,
directors and principal stockholders of the Company have the right to
acquire within 60 days after the date of this table pursuant to
outstanding options and warrants as follows: Thomas H. Bell, 545,000
shares; Myron A. Wick III, 67,750 shares; Charles C. McGettigan, 24,000
shares; James W. Gallaway, 87,875 shares; Robert R. Curtis, 426,959
shares; Jeffrey L. Bailey, 137,498 shares; Merrill L. Magowan, 79,125
shares; Wallace M. Hammond, 250,000 shares; Paul C. Cissel, 70,312
shares; Sidney Kahn, 9,438 shares; J. Rex Bell, 101,498 shares; Jon R.
Beizer, 24,750 shares; John David Singleton, 2,088 shares and Max
Thornhill, 2,088 shares.
(4) Includes 1,394,335 shares of Common Stock beneficially held in the name
of the Bell Non-Exempt Marital Trust of which Thomas H. Bell is a
trustee.
(5) Includes 1,582,930 shares of Common Stock which the following entities
either own or have the right to acquire within 60 days after the date
of this table upon conversion of preferred stock or exercise of
warrants held as follows: 1,510,657 shares held by Proactive Partners,
a California limited partnership ("PP"), the General Partner of which
is Proactive Investment Managers, L.P., a California limited
partnership ("PIM"), of which Messrs. Gruber, McBaine, McGettigan and
Wick are general partners; and 72,273 shares held by Fremont Proactive
Partners, L.P., a California limited partnership ("FPP"), of which PIM
is also the general partner.
(6) Includes 589,132 shares of Common Stock which the following entities
either own or have the right to acquire within 60 days after the date
of this table upon conversion of preferred stock, held as follows:
30,500 shares held by Gruber & McBaine Capital Management, a California
corporation ("GMCM"), of which Messrs. Gruber and McBaine are the sole
directors; 548,632 held by Lagunitas Partners L.P., a California
limited partnership, of which Messrs. Gruber and McBaine and GMCM are
general partners; 5,000 shares held by GMJ Investments, L.P., a
California limited partnership, of which Messrs. Gruber and McBaine and
GMCM are general partners; and 5,000 shares held by Lagunitas
International, a Cayman Islands Limited Partnership, of which GMCM is a
general partner.
(7) Includes 16,528 shares of Common Stock which Mr. Gruber has the right
to acquire within 60 days after the date of this table upon conversion
of preferred stock.
(8) Includes 4,132 shares of Common Stock which Mr. McBaine has the right
to acquire within 60 days after the date of this table upon conversion
of preferred stock.
(9) Includes 153,950 shares of Common Stock which could be acquired within
60 days of this table upon exercise of warrants held by McGettigan,
Wick & Co., Inc., a merchant banking fund of which Messrs. McGettigan
and Wick are Managing Directors, and 61,980 shares which could be
acquired within
10.
<PAGE> 11
60 days of this table upon conversion of preferred stock held by
McGettigan, Wick Investments, a partnership of which Messrs. McGettigan
and Wick are general partners.
(10) Includes 20,660 shares of Common Stock which Mr. Wick has the right to
acquire within 60 days after the date of this table upon conversion of
preferred stock held by the Myron A. Wick III Trust for which Mr. Wick
is the trustee.
(11) Includes 20,729 shares of Common Stock which Mr. Curtis has the right
to acquire within 60 days after the date of this table upon conversion
of preferred stock and 5,000 shares held by Mr. Curtis for the benefit
of his minor children.
(12) Includes 41,320 shares of Common Stock which Mr. Magowan has the right
to acquire within 60 days after the date of this table upon conversion
of preferred stock.
(13) Includes 4,939,032 shares of Common Stock which such persons have the
right to acquire within 60 days after the date of this table upon
conversion of preferred stock and pursuant to outstanding options and
warrants.
11.
<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the fullest extent permitted under Delaware law and the Company's
bylaws.
CHANGE OF CONTROL SEVERANCE PLAN
The Board of Directors has adopted a plan which is intended to provide
eligible employees with severance benefits in the event of the sale of the
Company or any similar corporate event which results in the employee's
involuntary termination of employment with the Company within a year after the
sale of the Company or similar corporate event. The amount of the severance
benefit is determined by the employee's position, title and level of
compensation, and generally will not exceed 4-6 months of compensation at the
rates in effect at the time of termination. Under the plan, stock options held
by terminated employees will accelerate and become fully vested and exercisable
as of the employee's termination. The plan does not cover temporary employees or
employees who have negotiated individual severance agreements with the Company.
CBS AGREEMENT
On October 31, 1994, the Company entered into a letter agreement with
Communication and Business Solutions, Inc. ("CBS") and Paul C. Cissel in which
the parties agreed that the Company would purchase certain assets of CBS
associated with its customer base in exchange for payment of $330,000 in 12
equal monthly installments beginning in December of 1994. Under the letter
agreement, the purchase price is subject to adjustment based on the performance
of the purchased customer base.
AGREEMENT WITH MR. CURTIS
Effective November 7, 1994 the Company and Mr. Curtis, the Chief
Executive Officer and a director of the Company, entered into a consulting
agreement under which Mr. Curtis would resign as Chief Executive Officer of the
Company, effective January 1, 1995, in order to provide consulting service to
the Company during 1995. In exchange for such services, the Company has agreed
to pay Mr. Curtis twelve equal monthly payments of $15,000 each, to pay accrued
vacation and medical leave benefits (without regard for usual limitations), to
reimburse Mr. Curtis for legal costs reasonably incurred negotiating his change
in status with the Company, and to fully vest any options on Company stock held
at December 31, 1994.
OFFSHORE FINANCINGS
In April 1995, the Company sold 385,000 units at $2.20 per unit for
$847,000 in an offshore transaction pursuant to Regulation S of the Securities
Act of 1933, as amended. Each unit was comprised of one share of the Company's
Common Stock and a Warrant, exercisable until April 18, 2000, which when
combined with another Warrant, entitles the holder to purchase a share of Common
Stock for $2.20. Co-placement agents for the financing were Oakes Fitzwilliams &
Co. Limited and McGettigan, Wick & Co., Inc. Mr. Wick is a principal of
McGettigan, Wick & Co., Inc., a director of the Company and the beneficial owner
of more than 5% of the Company's Common Stock. The co-placement agents received
a cash fee for their services in the financing equal to 10% of the proceeds of
the financing and a five-year warrant for 35,000 units at $2.64 per unit.
12.
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PREFERRED STOCK FINANCINGS
In September 1994, the Company issued 55,893 shares of Series E
Preferred Stock at $10.00 per share under an agreement with Proactive Partners,
L.P. ("Proactive") to convert a note payable to Proactive with a principle
balance of $500,000 and accrued interest of $58,930. Proactive and its
affiliates are beneficial owners of greater than 5% of the Company's Common
Stock. Mr. Wick, a director of the Company, is a general partner of Proactive
Investment Managers, L.P., the general partner of Proactive. In connection with
the issuance of the Series F Preferred Stock, the Company issued Proactive a
five year warrant for 100,000 shares of the Company's Common Stock which was
canceled when the outstanding shares of Series E Stock were converted to Series
F Preferred Stock (see below).
During the period July 1995 through October 1995, the Company raised
approximately $11,024,207, net of offering costs of $129,963, through a private
placement of 1,115,417 shares of its Series F Preferred Stock at a purchase
price of $10.00 per share. Additionally, the holder of the Company's Series E
Preferred Stock exchanged its shares of Series E Preferred Stock, plus
accumulated and unpaid dividends of $47,467, for 60,639 shares of Series F
Preferred Stock. The Series E Preferred Stock was held by Proactive, a
beneficial owner of greater than 5% of the Company's Common Stock. In addition
to the conversion of the outstanding Series E Preferred Stock into Series F
Preferred Stock, Proactive, Lagunitas Partners, L.P. ("Lagunitas") and Fremont
Proactive Partners, L.P. ("Fremont") also purchased 65,817, 30,377 and 5,062
shares of Series F Preferred Stock, respectively. Proactive, Lagunitas and
Fremont and their affiliates are beneficial owners of greater than 5% of the
Company's Common Stock. Mr. Wick, a director of the Company is a general partner
of Proactive Investment Managers, L.P., the general partner of Proactive,
Lagunitas and Fremont. The Series F shares are entitled to 9% cumulative
dividends, voting rights, demand registration rights for the underlying common
shares after six months and are convertible initially into 4,704,224 shares of
Common Stock, subject to anti-dilution provisions. The holders of the Series F
Preferred Stock also received warrants for the purchase of 470,422 shares of
Common Stock with an exercise price of $3.00 per share which expire in October
2000. The Series F Preferred stockholders have the right to place two directors
on the Company's Board of Directors (the "Series F Directors") and the Company
is subject to certain covenants requiring it to obtain the consent of the Series
F Directors for certain transactions including mergers, acquisitions and
incurring additional indebtedness in excess of $20,000,000. Currently, the
Series F Directors are Messrs. Singleton and Thornhill who are 0.73% and 7.41%
beneficial owners of the Company's Common Stock and who acquired their interests
in the Company as a result of the Series F Preferred Stock financing. As of
April 15, 1996, the outstanding shares of Series F Preferred Stock are
convertible into 4,704,224 shares of Common Stock.
ISSUANCE OF WARRANT
In August 1995, in exchange for services rendered in connection with
the Series F Preferred Stock financing, the Company issued McGettigan, Wick &
Co., Inc. a warrant for 62,200 shares of the Company's Common Stock exercisable
until February 15, 1997 at a per share price of $2.50, payable in cash or the
cancellation of Company indebtedness. McGettigan, Wick & Co., Inc. is a merchant
banking fund whose Managing Directors, Messrs. McGettigan and Wick, and their
affiliates, are greater than 5% stockholders in the Company. Mr. Wick is a
director of the Company.
ACQUISITION OF AUTOMATED COMMUNICATIONS, INC.
In January 1996, the Company acquired from Ms. Judy Van Essen all of
the outstanding shares of Automated Communications, Inc., a Golden, Colorado
facilities-based reseller of long distance service. Consideration for the
transaction was in the form of $4,000,000 in cash, 2,800,000 shares of the
Company's Common Stock valued at $10,500,000 and the issuance of a long-term
note in the amount of $1,300,000. As a result of the transaction and her
acquisition of 2,800,000 shares of the Company's Common Stock, Ms. Van Essen
became an 11.88% stockholder in the Company.
13.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond Date: April 26, 1996
-----------------------------------------
Wallace M. Hammond
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jeffrey L. Bailey Date: April 26, 1996
-----------------------------------------
Jeffrey L. Bailey
Senior Vice President
Chief Financial Officer
(Principal Financial
and Accounting Officer)
